La-Z-Boy (NYSE:LZB) confounded its critics in its second-quarter earnings report for fiscal 2006, released Tuesday. A little over a month ago, La-Z-Boy had blamed a series of natural disaster-related events when issuing an earnings warning about an expected "significant miss" of its previously forecast $0.17 to $0.21 per share in profits. Analysts promptly overreacted, predicting that the company would lose about $0.10 per share from its core operations, give or take a few pennies for any one-time events that cropped up.
As it turned out, La-Z-Boy did significantly miss its own profits projections, but just as significantly avoided the analysts' doomsday scenario. Though the company reported a net loss of $0.12 for the quarter, one dime's worth of that loss arose from the restructuring costs of closing a Canadian factory -- one of the one-time events that analysts did not foresee. Thus, on an apples-to-apples basis, La-Z-Boy lost just $0.02 of the analysts' expected $0.10 -- "beating estimates," in a manner of speaking, by $0.08.
That's not all. La-Z-Boy also noted that it expects to earn $0.13 to $0.17 per share in the current fiscal quarter. That's significant for two reasons. First, these numbers include an anticipated one-time restructuring charge of $0.01 per share, which should reduce the chances of unforeseen charges popping up in three months' time. Second, analysts mired in pre-earnings report pessimism had expected La-Z-Boy to earn just $0.11 in Q3 (excluding the same penny-per-share charge).
Thus did patient La-Z-Boy investors find themselves in possession of a double dose of good news this week: an "upside earnings surprise" combined with raised estimates for the quarter to come. As a result, La-Z-Boy shares leapt 18% in value in the immediate wake of Wednesday's news. Even today, after the initial euphoria has passed, the shares retain half of that gain.
As for what happened to the other half of that first day's gain, it withered under the weight of dual aspersions cast upon La-Z-Boy's new guidance by Region Financial's (NYSE:RF) Morgan Keegan and UBS (NYSE:UBS). I'm not so sure I agree with them on this one. After last month's recanted guidance, it just doesn't seem likely that La-Z-Boy would rush to promise big numbers next quarter unless it was pretty sure it could achieve them. Given that La-Z-Boy earned far more than $0.17 in the third quarters of each of the past three years, I'm inclined to believe the company when it says it will do so again this year.
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Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
